Fertilizer industry profits declines by 31% in third quarter

Profit of fertilizer manufacturers of Pakistan has declined by 31% YoY to Rs 8.6 billion for 3Q 2019, primarily due to 1) decrease in gross profit margins, 2) increase in administrative expense up by 33% YoY, and 3) spike in finance cost by 110%YoY. The analysis is based on sample of 4 largest listed companies, namely Fauji Fertilizer (FFC), Engro Fertilizer (EFERT), Fatima Fertilizer (FATIMA) and Fauji Fertilizer Bin Qasim (FFBL). The analysis is based on unconsolidated statements of FFBL and FFC and consolidated statements of EFERT and FATIMA for true depiction of their fertilizer business. During the period, Urea sales of these companies witnessed a growth of 6%YoY to 1.5 million tons due to pre buying by farmers/dealers amid hike in urea prices along with resumption in operation by Agritech and FatimaFert, contributing 179,000 additional tons. DAP off take of three companies (EFERT, FFBL and FFC) posted a decline of 10% YoY, in-line with sector’s volumetric decline of 11%YoY to 517,000 tons. Net sales of the sector witnessed a growth of 8%YoY to Rs93 billion during 3Q 2019, despite decline in volumetric sales due to increase in Urea and DAP prices. Gross margin of the manufacturers declined to 25% during 3Q2019, from 33% last year due to higher input cost. Government of Pakistan (GoP) has increased feed and fuel prices by 62% and 31% respectively which translate into increase in cost by Rs210 per bag.

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